Thesis’ Paterson: Three UK stocks we like to drive growth
Ryan Paterson, research analyst at Thesis Asset Management, has highlighted three UK companies that are currently helping to drive growth in the firm’s range of securities investment portfolios.
Paterson notes that while it was a quiet August for equity markets, UK equities continued to perform well as the Bank of England launched its latest series of monetary easing measures in the wake of Brexit.
Specifically, he has underlined Smurfit Kappa, Diageo and Playtech as being three stocks that they currently like to help enhance performance.
Smurfit Kappa, one of the world’s largest integrated manufacturers of paper-based packaging, is one such stock that Paterson sees as being a driver of growth.
“It is a name most investors won’t be familiar with but its recent transfer to a Premium Listing in the UK was made to increase the profile of the company, providing it with exposure, and increasing its attractiveness, to a wider potential investor base,” Paterson said.
“We think it’s the market leader in terms of innovation. This we believe should help it continue increasing its respective market share, as its customers react to fast changing consumer buying habits and the increasing use of e-commerce.”
Paterson added that the stock trades at a significant discount to its peers, which should narrow as its credentials become more widely appreciated, particularly because of its attractive progressive dividend policy which currently yields around 3.5%.
One stock investors will be familiar with that Thesis says is primed to provide further growth is drinks giant Diageo. Paterson said part of this reason was because sales momentum at Diageo is accelerating and the group is on track to meet now lowly set expectations.
“With the £500m cost-efficiency plan gathering momentum and risks to delivery skewed to the upside, there are reasons for optimism,” he said.
“In Diageo we get significant US exposure (45% of earnings) which should continue to benefit from a strong US consumer.
“The emerging markets’ foreign exchange driven headwind for scotch is turning into a tailwind helped by sterling devaluation and the expected deployment of over £300m will drive top line growth.
“Diageo is marking a new period of progress and we expect that consistent earnings growth ahead of peers will drive a share price rerating.”
The final stock that Thesis is currently favouring is Playtech, the leading supplier of technology/services into the global online gaming market.
Paterson said: “The company is a highly cash generative business, with an attractive dividend pay-out rate, providing a rare combination of premium earnings growth and premium yield.”
Playtech launched on the stock market with an IPO in 2006 and Paterson pointed out it has had a policy of paying out 40% of normalised net earnings into ordinary dividends, but recently updated this to a progressive dividend policy.
“Its first half results didn’t disappoint either, excluding acquisitions and at constant currency, revenue increased 17%, which was way ahead of market expectations.
“It also announced a special dividend of €150m (40 pence per share/46 € cents), which was very pleasing and still leaves it with plenty of firepower for acquisitions should they come along.”